The Dow swung more than 1,000 points in each direction over the course of trading yesterday. The market chaos started in Asia and spread to the United States as the day went on.

That the markets plunged that far in the first place is a sure sign that panic is definitely setting in. I'd be lying if I said I didn't feel the angst just like you do. You're not alone.

But here's the thing. Unlike most investors who are going to let panic take over, we know that the first step in building wealth is to take emotion out of the equation. And, instead, to focus on navigating the situation:

No investor ever has to suffer the ravages of a bear market if they're prepared; and,

There is always opportunity in chaos if you know where to look.

So today, let's talk about how you do that and, as usual, take a quick look at three specific investments you can put to work immediately if the U.S. markets fall further or if China's markets have not yet bottomed.

Here's how to protect yourself from a market correction – and make a profit when everybody is losing.

First, This Isn't a "Crash"

Most investors throw the word "crash" around like candy without bothering to understand what it really means. Not surprisingly, they get caught up in the moment and make a slew of bad decisions as a result.

A true market crash is something you don't need to spend a lot of time on because there will be nothing you can do about it. I don't want to make light of the situation, but I want to put the term in perspective.

Examples include 9/11 and Black Friday on Sep. 24, 1869, when Jay Gould tried to corner the gold market with James Fisk. Even the Kipper und Wipper of 1623 caused by the fraudulent debasement of currency in connection with the Thirty Years War qualifies.

When stuff like that happens, you have bigger problems… like how you're going to put food on the table. They are true economic disasters.

Again, I'm not trying to make light of the situation we're dealing with this week. The Fed has failed the markets and big down days feel terrible. It's hard to see red across the board when you look at your statements.

A day or two of bad trading, or even a few months of nasty stuff, do not qualify as a crash. It's a correction and it's normal. You want the markets to periodically scare the weak money out for the simple reason that chaos always creates opportunity.

You have to have lower prices before you have higher prices. That's why "buy low and sell high" is what it is… the true path to profits.

Let me prove it to you with a simple chart.

War, famine, recession, assassination, global terrorism… they're all terrible and, over time, they all fade into history's rearview mirror.

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean, and he's also the founding editor of Straight Line Profits, a service devoted to revealing the "dark side" of Wall Street... In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

Yesterday's "Flash Crash" stopped me out of a lot of your favorite stocks including Becton Dickinson and Ekso Bionics. Minutes after the crash the market rebounded leaving me unable to re-purchase the stocks at anywhere near the price that I was stopped out at. So now I have a real loss on these stocks and it looks like if I want to put them back in my portfolio, I will have to pay more for them than the price I was stopped out at. What are your thoughts on trailing stops after this recent high speed volatility?

Randy, there is a old saying, that says don't fall in love with a stock. There are many more stocks to look at buying, that will treat you better or just as good, as the ones you love.
So start looking.

I know losses are no fun – I personally hate 'em – but the very fact that you stuck to your discipline is GREAT and very commendable. Most investors cave under the pressure and their emotions get the better of them. Sadly, that makes them serial under-performers over time.

Study after study after study shows that trailing stops, while not perfect, actually improve investment performance. Some of my favorites include:

1 – The Journal of Portfolio Management by Christophe Faugere, Jany A. Shawky and David M. Smith and a study on how professional managers sell stocks most effectively

High speed trading really isn't the culprit here. Unscrupulous traders who "run the stops" before reversing course are – and there are ways around that using tactics I outline frequently at our sister service, Total Wealth Research and in the Money Map Report.

In closing, keep in mind that we wouldn't be having this conversation if the selling had continued. So this is, again, a good thing.

Thanks for making Money Morning such a great place to be and best regards, Keith :-)

An old ditty helps here. "Always remember, buy in November. Sell in May and go away." If we followed this simple platitude, over time, you'd be very well off. Some years it doesn't work, but it works more than 70% of the time, and that's pretty good.

I appreciate that Keith offers proactive downside protection alternative counsel (like inverse ETFs), which I consider both necessary and desirable in a volatile market in a bearish mode. This is an easy way to short (sell into) an over-bought market for the average investor. Plus they help relieve a lot of the stress and vulnerability of being exposed to wild market swings. A couple of other inverse ETFs I've used are DXD and SDS. Besides those, more recently I've found it advantageous to sign up for an options trading advisory service with a proven track record of high percentage wins. I won't (with respect to Money Morning) mention any in this comment, but they do exist and they can be amazingly profitable. I feel they tend to have a greater degree of risk management than trading ordinary stocks. The ability to both buy and sell options (calls and puts) opens the door to possibilities which simply don't exist with trading stocks outright. Once a person learns the ropes from someone who does this for a living, the volatility in the markets becomes a friend rather than foe. There's really little philosophical difference between trading options and being involved with buying and selling insurance, and with options a trader can be either the buyer or the salesman. I realize not every portfolio allows this kind of trading. I had to move money out of my employer's 401K plan and into an IRA in order to have the ability to trade options. But if a person's retirement income depends on the marketplace, and if we're in any kind of longer term bear market, using inverse ETFs and options is the best way to go. My portfolio is up over 10% in the last 30 days, and much of that is due to options income. I've also profited on the long side of some trades when the market looked oversold; but I believe technical analysis other factors suggest the overall trend is downhill for the indexes for the next few months. If an investor is unable to trade options or is afraid of inverse ETFs, I'd stick with high-dividend stocks like those recommended by Money Morning.

By submitting your email address you will receive a free subscription to Money Morning and receive Money Morning Profit Alerts. You will also receive occasional special offers from Money Map Press and our affiliates. You can unsubscribe at anytime and we encourage you to read more about our privacy policy.

You can view our VQScore top-rated stocks now by entering your email below:

By submitting your email address you will receive a free subscription to VQScore and occasional special offers from Money Map Press and our affiliates. You can unsubscribe at anytime and we encourage you to read more about our privacy policy.

Today's Markets

DJIA216.84(0.84%)25,962.51

NASDAQ109.99(1.42%)7,838.96

S&P30.65(1.09%)2,854.88

AWK1.53(1.46%)106.22

BDX2.27(0.93%)245.42

SH0.31(-1.12%)27.45

DRR1.46(2.52%)59.50

YXI0.03(0.17%)18.19

ABOUT MONEY MORNING

Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

By submitting your email address you will receive a free subscription to Money Morning and receive Money Morning Profit Alerts. You will also receive occasional special offers from Money Map Press and our affiliates. You can unsubscribe at anytime and we encourage you to read more about our privacy policy.